The market for taxi services in a Midwestern town is monopolized by Firm 1. Currently, any taxiservi 1 answer below »

The market for taxi services in a Midwestern town is monopolized by Firm 1. Currently, any taxiservices firm must purchase a $40,000 “medallion†from the city in order to offer its services. Apotential entrant (Firm 2) is considering entering the market. Since entry would adversely affectFirm 1’s profits, the owner of Firm 1 is planning to call her friend (the mayor) to request that thecity change the medallion fee by $F thousand. The extensive form representation of the relevantissues is summarized in the accompanying graph (all payoffs are in thousands of dollars andinclude the current medallion fee of $40,000). Notice that when F > 0, the medallion fee isincreased and profits decline; when F

 

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